Russian-Georgian Compromise Finally Permits Russia’s WTO Membership

The last remaining hurdle to Russia’s entry into the World Trade Organization (WTO) now appears to have been cleared, as Russia’s chief WTO negotiator, Maxim Medvedekov, announced on November 3 that Moscow has accepted a last-minute membership compromise. Thus, Russia has taken another significant step away from the closed, Soviet type centrally planned economy and toward full integration into the international community (RIA Novosti, November 4).

This landmark agreement follows 3,500 questions from other WTO members and 17 years of wrangling over whether Russia should be allowed to join the WTO. Since the 2008 Russia-Georgia war, the Georgian government has been adamant on blocking Russia’s WTO membership aspirations. Tbilisi was effective in doing so because the organization’s rules require the unanimous approval of any membership application by all 153 members.

The breakthrough finally came in late October, through the mediation of Switzerland and after heavy lobbying by, among others, the United States and the European Union. Georgia and Russia finally compromised on how to control trade between Russia and the two breakaway Georgian regions of Abkhazia and South Ossetia. Georgia continues to consider these two territories as its own, although they have broken away from it with Russian help and are now recognized by Moscow and a small number of other countries as independent states.

The agreement between Moscow and Tbilisi stipulates that “internationally certified monitors” from a private company, hired by Switzerland, which acted as an intermediary during the last stage of the negotiations, will monitor three border crossing points: one in Abkhazia, another in South Ossetia, and a third at Zemo Larsi-Kazbegi, which is an undisputed section of the Russian-Georgian border (Le Temps, November 21).

According to Georgian President Mikheil Saakashvili, the monitors, who “act on behalf of the international community,” will be accountable to Switzerland. This country will regularly provide information to Georgia as to the types of goods entering the internationally recognized Georgian territory. Georgia especially wants to ensure that Moscow does not continue to supply weapons to the two breakaway republics. The agreement means that trade – electronically controlled – between Georgia and Russia can gradually be resumed, and the Russians can again look forward to enjoying Georgian wine and mineral water (Civil Georgia, November 3).

The WTO Working Party on Russia signed the terms of Russia’s entry at the organization’s headquarters in Switzerland on November 9-10. The WTO Ministerial Conference is expected to approve the package of documents and formally accept Russia as a WTO member on December 15-17. The accession agreement terms must then be ratified by the Russian Duma. Russia’s lawmakers are likely to endorse the agreement in early 2012, following the parliamentary elections on December 4, 2011. This will be a mere formality, as Georgia has already accepted the agreement as it stands. It is now just a matter of making it official and binding all parties.

Russia’s path to the WTO has been long and winding, as many demands have been placed on Moscow. It had to make a number of structural changes to the Russian economy and to promise to combat corruption. The demands placed upon it once seemed so insurmountable that in 2006 the then-President, Vladimir Putin, was almost ready to give up and as an alternative to the WTO form a customs union with other former Soviet republics.

Both the West and Russia itself have much to gain from Russia’s admission to the WTO. The West is greatly interested in the growing Russian market, which becomes easier and safer to access when WTO requirements are being met. Russia gains prestige, economic benefits, investment and support for its “modernization” process. For example, Russian consumers will now have access to a greater variety of less expensive goods, as levies are being slowly reduced. Currently most foreign products are sold at prices 30 percent to 40 percent higher than their original purchase prices to cover the added cost of high import tariffs.

The Russian steel industry could significantly increase its exports to the EU because the restrictions and quotas presently in place will lapse after Russia’s fully-fledged membership. Russia is currently “satisfied” with exporting 3.3 million tons of steel, but it can easily increase this level of exports because of the high world demand. Conversely, in terms of air travel, Russia does not benefit from WTO membership. European airlines now pay $420 million annually to fly over Russian territory en route to Asia. These charges also lapse under WTO rules. In return, according to Medvedkov, Russian airlines will gain greater access to affordable, new, Western-produced aircraft and will be able to hire pilots in other countries on more favorable terms. Boeing, the American aircraft manufacturer, has been one of the most active lobbyists for Russia’s admission to WTO. Medvedkov also says that Russia has accepted “substantial” cuts in import duties on construction materials, agricultural tools, various types of healthcare equipment and technologies (RIA Novosti, November 5).

Russia’s WTO membership is a feather-in-the cap of, above all, President Medvedev, a logical consequence of his efforts to implement a pro-Western foreign policy, moving Russia closer to the EU and the US. Moscow is now in a better position to implement various policy initiatives and programs design to modernize the country’s economy and infrastructure, including the energy sector. This will not only bring about economic returns but make the country less dependent on oil and gas exports. Medvedev’s modernization program, which Putin also claims to support, is likely to continue if the prime minister returns to the presidency in March 2012, as expected. Russia’s upcoming WTO membership has been welcomed by both Russian politicians and analysts and many in Western countries. Victoria Nuland, Spokesperson for the US State Department, said that America is “satisfied with the agreement between Georgia and Russia, paving the way for Russian accession to the WTO” (RIA Novosti, November 5).

Following a sideline meeting with Medvedev on November 13, during the 2011 Asia-Pacific Economic Cooperation (APEC) summit in Honolulu, US President Barack Obama said that talks with the US Congress on the revocation of the Jackson-Vanik amendment would begin within days. The Amendment, which dates from 1974, states that in order for trade relations between Russia and the US to continue normally the US President must grant a waiver certifying that Russia does not deny its Jewish citizens the right to emigrate. This archaic clause, which no longer reflects the current reality, is used as an instrument of pressure by the US government for various foreign policy purposes.